What are the basics of life insurance?

A life insurance policy is simply a contract between you -- the insured -- and the insurance company wherein the insurance company agrees to pay a certain amount of benefits upon your death. Assuming that there have been no misrepresentations made by you in applying for this type of insurance coverage, then your survivors would simply make a claim to that insurance company upon your passing and the designated beneficiary will then receive the benefits due.

There are different types of life insurance coverage. The most common form of life insurance coverage these days is term life insurance. Term life insurance policies have no value other than the face amount of the policy, and even then have no value unless the person who is insured passes away during the coverage period.

Another type of life insurance coverage is that of whole life coverage. This is actually a type of investment in which the value of the policy may increase over a period of time as you pay premiums. You may also be allowed to take loans against the policy and perhaps even redeem the policy for a fixed amount of money. The theory behind whole life is that you not only are insuring your life, but you are also making an investment that is increasing in value over a period of time that you may utilize by taking a loan against it or cashing it in.

In most life insurance policies, the application for insurance is included as part of the policy. The reason for that is that pay­ments under life insurance policies are generally rather substan­tial. If there are any misrepresentations made in the application, that may be a basis for voiding the insurance policy. Frequently those misrepresentations are not discovered until after the person has passed away and an autopsy has been performed.